Illicit Trade in Tobacco Products

​Illicit tobacco trade results in a considerable loss of tax and duty revenue for governments, and helps fund organized crime as well as terrorist groups.

Illicit Trade in Tobacco Products

Overview

Statistics/ Figures

Impact on the SDGs

<

>

Like illicit trade in many other industries, revenues from illicit trade in tobacco products have been linked to funding terrorism, organized crime and loss of revenue to governments. Illicit tobacco is often smuggled through the same networks as drugs, weapons and other illicit goods. (Interpol, 2014).

​Illicit tobacco trade results in a considerable loss of tax and duty revenue for governments, and helps fund organized crime as well as terrorist groups (OECD, 2016). The low penalties and detection rates, coupled with high profit margins, makes this type of illicit trade an important source of revenue for criminal networks.

Over the years, several efforts have been made to recognize the detrimental effects of illicit trade in tobacco on countries and develop efforts to tackle the same. Back in 2003, the World Health Organization (WHO) recognized the need to regulate the illicit trade in the tobacco industry as imperative to promoting public health.

As a result, the WHO orchestrated the adoption of the first international treaty back in 2003 called the Framework Convention on Tobacco Control (FCTC). The FCTC, recognizing that illicit trade in tobacco as a serious issue, adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (Protocol). Adopted in November 2012, this treaty, pending ratification by 7 more countries as on date, aims to control illicit trade. Local governments have also increased efforts to curb the same and control and monitor the supply and distribution chains of tobacco products.

“Illicit trade in tobacco can be defined as any practice or conduct prohibited by law which relates to production, shipment, receipt, possession, distribution, sale, or purchase of tobacco products including any practice or conduct intended to facilitate such activity.” – Department of State, United States

The annual value of the illicit trade in tobacco is estimated at US$ 40 billion (Euromonitor International, 2016), with 1 in every 10 cigarettes consumed being illicit (WHO, 2015).

Among the forms of illicit trade affecting tobacco products, the manufacturing, distribution and sale of so-called “illicit whites” appears as an increasingly worrying phenomenon. According to the KPMG, “illicit whites brand flows continued to represent over one third of C&C in the EU, equating to 3.5% of total cigarette consumption. The number of illicit whites brands increased by 12% with many identified in small volumes; this may further complicate identification of the source and nature of the product" (KPMG, 2016). Tobacco products “in –transit” means lesser taxes and duties on these products, which becomes one of the avenues for cross border smuggling.

As is for most industries, illicit trade in the tobacco industry is rampant the market is estimated to be tens of billions of dollars (FATF, 2012):

In 2015, it was estimated that one in every ten cigarettes bought were illicit (FCTC, WHO, 2015).

In 2010, the global trade discrepancy in cigarettes was found to be 90 billion sticks.

​SDGs were adopted by the UN in 2015 with the main agenda to eradicate poverty and strengthen the global economy. (See the list of SDGs here)

Persons living in low-income countries consume cheaply priced illicit tobacco products, which has increased and critical health concerns when compared to legitimately produced tobacco products. Moreover, such expenditure remains untaxed because it is illegally traded and creates lucrative gains for criminals. In recognition of the health risks associated with smoking, the legitimate industry, in the recent years, has made a commitment to developing reduced-risk products and is working on long-term sustainability goals across their value chains. Moreover, tobacco companies are also striving to ensure sustainability throughout their operations including better infrastructure in the regions they operate, adopting good agricultural practices to promote sustainable farming, and ensuring that rights of their employees and farmers are respected. Mindful of the environmental impact of their operations, the industry is also employing ways to minimize their carbon footprint, reduce wastage of water, increase energy efficiency and implement re-forestation programs.

Effectively regulated production and distribution supply chain of tobacco is crucial to achieving the SDGs, especially in relation to poverty, public health and increasing government revenue. According to estimates, every year governments lose US$ 40.5 billion in revenue from the illicit trade of tobacco products. In some countries, illicit trade can reach as high as 40–50% of the overall tobacco market. (WHO)

Incentives offered by the tobacco industry, such as ready supply of agricultural inputs and the promise of guaranteed crop sales, push farmers in the developing world towards growing tobacco to make a better livelihood (FCTC). Moreover the private sector continues to strive to improve working conditions for farmers growing tobacco and to make tobacco farming both profitable and sustainable.

Achievement of the SDGs, especially in low to medium income countries, means and includes improving health and sanitation and general standards of living and eradicating poverty. The illicit trade in tobacco products adversely impacts the achievement of these SDGs.

Context

Strategy

<

>

“The SDGs, also known as Global Goals, build on the success of the Millennium Development Goals (MDGs) and aim to go further to end all forms of poverty. The new Goals are unique in that they call for action by all countries, poor, rich and middle-income to promote prosperity while protecting the planet. They recognize that ending poverty must go hand-in-hand with strategies that build economic growth and addresses a range of social needs including education, health, social protection, and job opportunities, while tackling climate change and environmental protection.” United Nations.